Question about 1116 & 2555 for resident alien

alize09 · Post by **alize09** » Tue Mar 30, 2010 11:46 am

This is his reply when I asked him why I owed more taxes:

Concerning paying taxes on your Canadian income twice, let me explain how the U.S. Form 1116, Foreign Tax Credit works. It looks at your Canadian income as a percentage of your total income. In your case, your Canadian income was 77% of your total. It then multiplies 77% times the amount of foreign taxes you paid and that becomes your credit. In your case, the credit is $1680. A credit is a dollar for dollar reduction of your taxes

So, the bottom line is that, because of your Canadian income you owe more U.S. taxes than if you only declared your U.S. income. In other words, if you didn't have to report your Canadian income, you would owe no taxes on your U.S. income

nelsona · Post by **nelsona** » Tue Mar 30, 2010 4:33 pm

Thta is wht exclusion is bettet than foreign tax credit.

He is correct in his analysis, and I've said this for years.

But he is wrong about not being allowed 2555.

alize09 · Post by **alize09** » Tue Mar 30, 2010 6:37 pm

so should I tell him to use the 2555? i thought I can only use that if i was filing as dual status.

alize09 · Post by **alize09** » Tue Mar 30, 2010 7:04 pm

i forgot to mention that I was not in Canada for a full year in 2009. And I filed a T1. Canada is not my tax home. US is my tax home.
So thats why I thought I was not eligible for the 2555

nelsona · Post by **nelsona** » Wed Mar 31, 2010 6:45 am

You were in canada for a full year if you include the period up until your departure. You get to claim if the year period (330 days actually) ended in 2009. Your Cdn wages have to be earned wheile living in canada of course.

alize09 · Post by **alize09** » Wed Mar 31, 2010 11:01 am

I was only in canada earning income from canada until april 2009 so I do not meet the 330 days.

i hope this is my last question.

My accountant initially excluded my Canadian E.I. in my 1040. I brought this to his attention. (i dont know why he initially did it that way... he told me i HAD to include all 2009 income). He said I didnt have it in my T1 so he was following my canada tax return. (btw, i didnt include it b/c I didnt get any credit by using the 217). I explained that to him and then he added my EI to 1040 which bumped me right up to paying IRS. I'm second guessing my accountant's knowledge and its ironic b/c i hired an accountant thats close to the Canadian border.

So in my US tax return, am I required to include my E.I. I received while I was in US even when the taxes where withheld? or is this optional?

nelsona · Post by **nelsona** » Wed Mar 31, 2010 2:47 pm

Were you in canada in 2008? If so, THAT PERIOD (from april 2008 to april 2009) makes up your 330 days.

As I already said, a 1040 means reporting ALL world income. That is exactly how a US citizen in your position would file, so you as a Cdn can too.

That is also why you are entitled to use 2555. Trust me, 2555 will save you $100's.

Your acct has made some mistakes, but I'm thinking they may be more by a lack of info from you. But on 2555 he is wrong probably because he does not understand treaty.

alize09 · Post by **alize09** » Wed Mar 31, 2010 2:57 pm

thanks a bunch! you've saved me from tax hell!

alize09 · Post by **alize09** » Wed Mar 31, 2010 3:09 pm

Ok maybe im still in tax hell and do this myself! b/c i just asked acct about form 2555 and my accountant says:

Form 2555 does not work in your case. You have to be a U.S. citizen or resident working overseas, to use that form. You did not become a resident for tax purposes until you had lived here for 183 days in 2009, after you already earned your Canadian income.

nelsona · Post by **nelsona** » Wed Mar 31, 2010 3:52 pm

... as I said, he does not understand the treaty, which allows Cdns to file exactly how Americans would (article XXV). .This is standard and approved practice.

Does this guy know about cross-border taxes? Did he prepare BOTH sides of your returns US and Canada, or is he just an H&R block guy?

nelsona · Post by **nelsona** » Wed Mar 31, 2010 3:52 pm

You're pretty much finished with him. Now you need to amend your return to use 2555. He's not up to the job obviously.

alize09 · Post by **alize09** » Wed Mar 31, 2010 4:01 pm

I just searched for cross border tax accountants near the border in Washington state - Blaine, WA to be exact (thinking I will get someone who's familiar w/ cross border taxes). I thought he knew what he was doing until I asked detailed questions and I just sounded like an irrate customer second guessing everything he told me. I just wanted to get a clear freaking answer and I have more clear answers from you sir . I should just pay you

Luckily he didn't file my Canada tax return. And he was not able to efile my US return (like I told him in the beginning). So he just sent my tax return to sign and send.